Wednesday, April 09, 2008

ECON 365: Overtreatment II

Overtreatment is one reason why US health care is so expensive (and thus why many people lack insurance coverage). We pay alot for doctors visits, tests, and treatments that do little to improve health outcomes. As noted below, some estimate suggest that 1 out of 3 dollars spent on health care was not necessary.

Below is a handy map from the Dartmouth Atlas Project discussed in class (and the previous overtreatment post) it shows the average spending by Medicare in the last two years of life for chronically ill patients. Variation in spending isn't bad by itself, but the fact that higher spending is not associated with better outcomes is problematic.

Ezra Klein explains more:

More specifically, the UCLA medical center spends $93,000 per patient over the last two years of life. The Mayo Clinic, by contrast, spends $53,000. Patients at UCLA had twice as many doctor visits and spent 50 percent more time in the hospital. But the outcomes were no better. The Mayo Clinic, in fact, is considered to have better care than UCLA. The difference is that they don't overtreat, and rather than being in Los Angeles, which has a high density of health service supply, they're in Minnesota, and aren't affected by a glut of specialists and imaging systems.

The difference, in other words, is the incentives for overtreatment. Prescribing, and paying for, unnecessary, unhelpful, possibly even dangerous, care. And what the Dartmouth Atlas Project has proven is that in health care, supply creates demand. When there are more hospital beds and surgical facilities, doctors and hospitals make sure they get used. They contract out with emergency rooms or they inculcate a culture of intensive treatment or they're simply swayed by the ability to offer this care, and so patients are happily sent to get ever more care, which they tend to appreciate because the mythology of medical treatment is that everything that's done gets you one step closer to "better." That of curse, isn't true. In fact, excess treatment does quite the opposite. It costs us money and, in some cases, harms or kills us, through medical errors or hospital infections or adverse drug interactions.

When folks talk about health care spending, they often talk about rationing. But that's not really what's at issue here. You're not "rationing" care if you only pay for high value treatment. You're helping people get the care they need, and helping them stay away from unnecessary treatments that could harm them. It's the difference between buying everything in the store because you don't know what's necessary and walking in with a shopping list. The latter isn't a cruel constraint. It just makes sense.

Ultimately, there are several contributing factors to overtreatment.

Patient Moral Hazard -- insured patients don't pay the full marginal cost for utilizing
the health care system, as such, they consume too much care. Section 15.2 of the textbook explains the details of this process.

Doctor Moral Hazard -- because patients don't know what they ultimately need and because doctors get paid for tests run and procedures performed (and they get doubly paid if they own the testing equipment like the MRI or perform the additional procedure themselves), doctors have an incentive to perform and bill for extra tests and procedures (these incentives might be furthered by their fears of malpractice suits).

Drug and Device Manufacturer Marketing -- these two types of moral hazard are enhanced by the efforts of drug and device manufacturers. Direct advertising to patients prompts many doctors visits and some unnecessary utilization of expensive drugs. Marketing to doctors and using doctors as "consultants" encourages doctors to prescribe expensive drugs and devices that may not be needed.

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